By: Kareemcheese W., Abbi G.

WITH THE INCREASED ECONOMIC ACTIVITY OF THE MIDDLE AGES, THERE WAS A GROWING NEED FOR MONEY EXCHANGE AND THE CONVERSION OF COINS. MONEY CHANGERS WERE SOON HOLDING AND TRANSFERRING LARGE SUMS OF MONEY AND EXTENDING LOANS TO MERCHANTS. AS THE DEMAND INCREASED, SO DID THE NUMBER OF SERVICES. COMMON FINANCIAL ACTIVITIES CAME TO INCLUDE GRANTING LOANS, INVESTING, AS WELL AS MOST OF THE DEPOSIT, CREDIT AND TRANSFER FUNCTIONS OF A MODERN BANK.

BANKING IN THE MODERN SENSE OF THE WORD CAN BE TRACED TO MEDIEVAL AND RENAISSANCE ITALY

A major obstacle to the growth of banks in the Middle Ages was the Church's prohibition of usury, the charging of interest on loans. As economic activity expanded, however, the papacy became one of the first to insist that interest should be paid on investments made at a risk. Because they were forbidden to hold land or engage in more "acceptable" sources of economic enterprise, money changers in the Middle Ages were typically Jews. After the shift in Church policy regarding usury, it became more acceptable to be a financier and attempts were made to expel Jews from their commercial role.

The greatest danger to Medieval banking was in granting loans to European monarchs to finance wars. The use of mercenary armies and field artillery increased the costs of mounting military operations. To finance these activities, rulers were often willing to repay loans at extremely high rates of interest sometimes as high as 45 to 60 percent. Yet if they were unable to repay the loans, they simply did not. Most of the bank failures of the late Middle Ages and Renaissance were the result of large loans to rulers who refused to pay their debts. The Bardi and Peruzzi banks suffered greatly when England's monarchs refused to pay for loans acquired to finance the Hundred Years' War.

PEOPLE DIDN'T UNDERSTAND THE NEW WAY OF BANKING AND LOST LAND TO UNPAID LOANS